Brazil Is Back to Pre-Junk Levels as Swaps Traders Bet on Temer

Julia Leite & Paula Samba – Bloomberg, 06/27/2016

Brazil is winning over derivatives traders as Acting President Michel Temer seeks to repair the nation’s finances.

The cost to hedge against losses in Brazil’s bonds with credit-default swaps has tumbled by almost a third in the past six months, the biggest drop among the world’s major economies. Prices of the swaps are also now back to levels that prevailed before S&P Global Ratings cut the country’s rating to junk in September.

The turnaround is part of a rebound in Brazil’s financial assets this year fueled by the removal of President Dilma Rousseff from office while she faces an impeachment trial. Since taking the reins last month, Temer has proposed spending caps to help shrink a near-record budget deficit and struck a deal to ease a fiscal crisis roiling Brazilian states amid the longest recession in more than a century.

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